Investment decisions under risk: experimental evidence on opportunistic behavior and financial manipulation

Abstract

Topicaсtuality: This study addresses the growing concern of financial misconduct in economic systems, focusing on the interplay between opportunistic financial strategies and individual risk preferences - a critical area in behavioral economics. Understanding these dynamics is essential for promoting ethical decision-making and economic stability. Aim and Task: The main objective of this study is to investigate how risk aversion influences opportunistic behavior in investment decisions, including financial fraud, deception, and strategic manipulation. Additionally, it aims to explore how individuals adjust their risk perception after engaging in dishonest financial strategies under varying levels of detection risk and economic incentives. The study investigates how engaging in deceptive financial strategies influences individuals’ risk tolerance, exploring whether opportunistic behavior reinforces risk-taking or fosters caution under varying enforcement conditions. Materials and Methods: An incentivized online experiment was conducted using the oTree® platform, involving 200 participants who made decisions across four strategies: honest investing, evasion, manipulation, and asymmetric information exploitation. Participants allocated an initial endowment while facing probabilistic audits and penalties, with risk preferences measured via binary-choice questions pre- and post-game. The mathematical apparatus of game theory was employed to model strategic interactions and decision-making under risk and statistical methods for experimental data processing. Research results: As shown by logistic regression, successful opportunists exhibited a 23% higher likelihood of increased post-game risk tolerance, while those detected and penalized became more cautious. Detection reduced risk tolerance probability by 21 percentage points. Marginal effects analysis further confirmed the deterrence effect of enforcement mechanisms. The results contribute to a broader understanding of how financial deception and regulatory enforcement influence economic behavior. Our findings indicate that detection mechanisms are critical in shaping strategic decision-making, reinforcing the importance of institutional transparency and market oversight. From a policy perspective, evidence that successful deception reinforces risk-taking behavior suggests that weak enforcement environments may inadvertently encourage opportunistic financial behavior, leading to increased market instability. In contrast, the significant effect of penalties on reducing subsequent risk-taking aligns with regulatory efforts to deter financial misconduct. Conclusion: The study contributes to behavioral economics by demonstrating how deception shapes long-term risk attitudes, emphasizing the need for robust regulatory mechanisms to mitigate opportunistic behavior. These insights are crucial for designing governance tools that ensure financial stability and ethical investment practices.